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International Herald Tribune: Total agrees to form a consortium with Gazprom to develop offshore gas field

International Herald Tribune photograph

Aleksei Miller, chief of Gazprom, presented the deal as a positive step.
(Dmitry Beliakov/Bloomberg News)

By Andrew E. Kramer
Published: July 12, 2007

MOSCOW: The French oil company Total has agreed to form a consortium with Gazprom to develop one of the world’s largest natural gas deposits, offshore in the Russian Arctic. The deal, announced Thursday, is a sign of the willingness of oil companies to continue work in Russia in spite of the risks of nationalization.

Total’s deal is a long-sought prize for foreign energy companies. The field holds enough natural gas to meet all European demand for seven years – but comes after two similar, large energy investments in Russia have been effectively nationalized just in the past six months.

Russian authorities forced Royal Dutch Shell and TNK-BP, a local joint venture of BP, to sell majority stakes in their projects in December and June. In those cases, the beneficiary was Gazprom.

Total’s willingness to bet on a deal in Russia in spite of this trend suggests the lengths that major oil companies will go for access to scarce energy reserves, even in countries with governments increasingly hostile to international oil companies, like in the former Soviet Union, the Middle East and Africa, energy analysts said.

Tellingly, the agreement announced by Gazprom on Thursday gave Total no claim to the underlying reserves of natural gas. Instead, the French company will own 25 percent of the operating company that will develop the Shtokman field, 340 miles, or 544 kilometers, north of Russia’s Arctic Ocean coast.

“As a matter of principle, the Russians will not have companies as owners of the assets underground,” Jan Thompson, an energy and environment attaché at the Norwegian Embassy in Moscow, said by telephone. The Norwegian companies Statoil and Norsk Hydro, which are now merging, had also bid for the Shtokman field.

“Some other formula had to be found,” Thompson said. “This would seem to be that formula.”

The operating company will also help finance the field, considered one of the most technically challenging energy projects in the world; it will not own the natural gas that is eventually produced, or have any say over where it is sold.

Gazprom will retain the license to the field through a separate subsidiary.

A spokeswoman for Total declined to elaborate on the deal, other than to say that Christophe de Margerie, the Total chief executive, plans to be in Moscow on Friday for a signing ceremony, when more details will be made public.

The field, expected to go online in 2013, is capable of supplying either the East Coast of the United States or Europe. It holds 3.7 trillion cubic meters of natural gas and 31 million tons of natural gas condensate, or enough to supply the total natural gas demand of European Union member countries for seven years.

The Gazprom chief executive, Aleksei Miller, presented the deal as a positive step, perhaps healing the breach with foreign companies opened after the forced sale of Shell and BP properties.

“The agreement is the latest, important step in developing mutually beneficial cooperation and partnership relations between Gazprom and the biggest global energy companies,” Miller said in a statement.

The site, far above the Arctic Circle, is dark six months of the year and subject to fierce winds and storms. Platforms would need to be impervious to icebergs. And once extracted, the gas would travel by undersea pipeline to Russia’s northern coast.

Because of these difficulties, Shtokman became a test case for one of the few bargaining chips the international energy companies retain in striving to gain access to reserves in countries with nationalized oil industries: the technological secrets of offshore oil development.

Negotiations, which have been going on almost since the field was discovered in 1988, with two previous consortium deals collapsing, became a balancing act between the oil companies’ offer of technical help and the Russians’ insistence on national control.

Before a degradation in U.S.-Russian relations that began last year, the Shtokman field had been the centerpiece of a continuing effort by President George W. Bush to encourage direct Russian oil and natural gas shipments to the United States, as a method of diversifying supplies away from the Middle East.

But Gazprom last October abruptly halted talks with five foreign oil companies – Total, Norsk Hydro and Statoil of Norway, and ConocoPhillips and Chevron of the United States – and said it would develop the Shtokman field on its own. Miller said at the time that companies might be invited back as contractors.

Total, the Norwegians and ConocoPhillips continued talks; Chevron said last spring it was no longer interested. Norsk Hydro and Statoil are in a merger scheduled to be completed Oct. 1, and will be called StatoilHydro.

Total had not done well in Russia previously.

The company owns 50 percent of a midsize production-sharing agreement in the Russian north. Just last year, Rosneft, the Russian state oil company, canceled a partnership with Total to develop the $3 billion Vankor oil field in Siberia. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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